That’s one of the questions Bernstein’s Toni Sacconaghi (who covers Apple) and Alberto Moel (who covers Corning) set out to answer in a two-part report to clients issued Wednesday — the same, day, coincidentally, that Arizona Gov. Jan Brewer vetoed a controversial anti-gay bill that Apple opposed.
The other question they address is who came out ahead in the deal Apple signed with GT Advanced Technologies (GTAT), which has contracted to provide enough crystal growing capacity to make, Moel estimates, the equivalent of up to 25 million smartphone covers a quarter.
Their reports represent the deepest dive I’ve seen yet into sapphire, its unique properties (Moel calls it a “wonder material”), its industrial uses, and what promise it might hold for Apple.
The two analysts don’t have a definitive answer for that last part, except to demolish the theory that sapphire crystal will replace Corning’s (GLW) Gorilla Glass screen on the iPhone anytime soon, except perhaps as a laminate. (Why would Apple, which already owns the high-end smartphone market, replace a $3 screen with a $15 crystal that would probably shatter even more easily?)
Which makes their analysis of the deal even more interesting. Basically, Apple has paid $113 million for an empty factory and loaned GT $578 million to purchase, install and operate the world’s largest sapphire crystal-growing plant. GT gets a huge bump in its income and a lot of press and prestige, but it’s assuming most of the risk. Apple is paying for the capacity, but it hasn’t promised to buy all — or even any — of the sapphire GT makes.
From Apple’s point of view, it’s a pretty sweet deal. As Moel writes:
In separate piece posted same day on Seeking Alpha, Deloitte CRG’s Matt Lew looks at the deal from a higher altitude:
“And that,” Lew concludes, “is the Apple way.”